- The U.S markets suffered heavy selling last Thursday. It continued into the first half of the trading session on Friday.
- The sell-down is in reaction to the technology stocks as it has gotten way overheated.
- Based on the technical, the market is still well within the bullish trend. Except for Dow Jones Industrial average which has failed to clear above the March 2020 high.
- On the S&P 500, we maintain our 3700 target. We expect Nasdaq to resume its upward move to test the immediate resistance of 12,500
The Dow Jones Industrial has met its resistance after the index closed above 29,000 following the sell-down in March 2020. Despite a strong bearish rejection at the resistance zone, the weekly candle’s lower shadow remain elevated above the support level at 27,580.21.
As long as the index stays firmly above 27,000 support level, the near term outlook for the Dow will be looking to break the resistance zone and test the new high at 30,000 region.
We mention in our report dated 24th August on the likelihood of a potential double three formation should prices fail to break above the resistance zone. In as much as the index is showing signs of rejection of the resistance zone, the confirmation of a double three is prices should break below 27,000 first followed by a strong downside below the key support zone at 24,680-25,000.
Otherwise, we are holding to a possible potential upside once as described in Figure 1a.
Smart money has been flowing positively into the U.S markets. Although the huge drawdown back below the trend line of the smart money index, the smart money index is showing a slight tick upwards on its immediate support.
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*The value on the y-axis is describing the % percentage rate of change.
*The Smart money index is an aggregate of the total nominal gain and loss within the major U.S indices.
The Dow Jones industrial faced heavy selling on last Thursday and the selling carried on well into the first half of the trading session on Friday in reaction to the bearish engulfing candles. However, DJIA remains elevated above the support at 27,600.
Should Dow Jones reverse lower and break the support at 27,600, the sub-wave of (i) and (ii) highlighted in red will be invalidated.
The S&P 500 has finally crossed above 3,500 with prices nearly testing the 1st obstacles at 3,600, but fell short of the target by 12 points on Wednesday. Finishing at 3,588.12.
Despite a strong selling on Thursday, the S&P 500 close above the resistance turned support level at 3393.92 with a bullish like hammer candlestick pattern. Based on the positive technical outlook, we maintain our target at 3,700, which is the sub-wave (iii) target highlighted in our chart.
Nasdaq selling begun after a hanging man/Dragonfly doji appeared at the top near 161.8% expansion level of wave (i)-(ii) last Wednesday. Like the Dow Jones Industrial and S&P 500, the hammer/pin bar managed to close back above the uptrend line and the support of wave (i) at 11,273.33. Nasdaq will likely be resuming its up move to test the immediate resistance at 12,500.
However, should the stock reverse below primary phase of wave 3 resistance level at 11,070, Nasdaq will then start its correction prematurely deeper into the support zone at 10,145.46-10,309.34
We maintain our stance based on our report dated 31st August based on the following reason,
- Snap Inc has finally broken the neckline resistance at US$22.50, confirming the bullish reversal signal of the stock.
- Despite a sell down on Friday, prices managed to stay above the neckline resistance turned support level after deep retracement back to the upper bound of the support zone at US$21.53.
*Should the support zone be invalidated, the next possible support region will be at US$21.35-US$23.30.
Deep pullback to the support zone is observed after Slack Technologies broke out of the falling wedge last week. Although the 3 black crow candles formation has been observed, we will be looking at a slight rebound as 60% of the time when there is a breakout of the wedge formation, there will be a pullback of a sort.
However, we are still not out of the woods yet as the stock needs to break above US$35.00 to confirm its bullish trend again. Should price break below the support zone 1, the next potential rebound will be at support zone 2.
Although we are bullish on Alibaba based on our report on 1st September, we pre-warned that there is a good chance that US$295.26-US$300.00 will be rejected and should that happen, the stock will likely correct and retest the major support level at US$268.00. The stock made an urgent sell down on Friday after prices failed to hold above the extension level of 200% and prices rebounded as expected.
The next question is will Alibaba continue its upside towards US$305.67-US$310.00 or will it reverse at US$295.00 again, which will form the prospect of wave B, which in turn a potential regular corrective flat will be formed. However, should prices rally higher to US$305.67-US$310.00, chances are it will be an expanded/running flat corrective wave.
Fastly Inc potential head and shoulder formation remain a threat to a bearish reversal and despite a dragonfly doji closing above the neckline support. The risk will be the resistance zone of US93.39-US$99.80 becoming coveted selling zone. Only by breaking the resistance zone will the threat of the head and shoulder be neutralised.
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